SEC exposes online investing risks through its own bogus Web sites

  • Wednesday, January 30, 2002 9:00pm
  • Business

Associated Press

WASHINGTON — Bogus Web sites offering investment opportunities in phantom companies are popping up on the Internet in a government effort to point out the risks of online investing.

The Securities and Exchange Commission has created three hoax Web sites, mimicking a technique used by the con artists who federal regulators want to stop.

"The crooks figured this out a long time ago, and we think it’s about time we used the exact same tactics to fight back," SEC Chairman Harvey Pitt said Wednesday at a news conference.

"The only difference between our scams and the ones that the fraudsters put on is that we won’t take any money from investors," Pitt said. "We will try to give them something to learn from."

Susan Wyderko, who runs the SEC’s investor education office, said the trick Web sites are a legitimate and ethical approach. She said people would not be prosecuted for similar deceptive techniques as long as no fraudulent requests for money are made.

McWhortle Enterprises, the one fake company the SEC identified, touts a Bio-Hazard Alert Detector. It is described as a battery-powered device that fits in a jacket pocket and beeps and flashes in the presence of all known biohazards, including anthrax.

The McWhortle Web site includes an audio interview with the company president and testimonials from an analyst with a "major investment banking firm" and the chief financial officer of a "Fortune 100 company."

People who continue clicking to invest their money get the message: "If you responded to an investment idea like this … you could get scammed!"

On Friday, the SEC issued a news release on behalf of McWhortle, saying the company would go public Wednesday and the company’s president would hold a news conference at SEC headquarters. The release was distributed mainly to Web sites by a service for financial news. Financial news agencies that received the fake release were warned.

In the three days after the release was sent, the McWhortle Web site received more than 150,000 visits, the SEC said. People who tried to contact McWhortle, sometimes offering personal information such as Social Security numbers, received responses from the SEC disclosing the true purpose of the Web site.

Pitt said potential investors should do their own research to make sure a company exists, that its products are genuine and its claims legitimate.

"Don’t be fooled by a pretty Web site," he said. "If you don’t understand an investment, don’t buy it."

Pitt said the SEC, working with other U.S. and international agencies, will be making many more of these sites.

Wyderko would not identify other hoax Web sites now online, but she said one site produced with the help of the Treasury Department involves a banking scam.

Barbara Roper of the Consumer Federation of America said she did not have a problem with the government’s methods.

"There’s clearly no intent here to do anything but educate the public in a way that might actually catch people’s attention and make them realize they were that close to being scammed," she said.

The Federal Trade Commission has used these kind of teaser Web sites to educate consumers about business scams and dubious products since 1997, and now has 14 on the Internet, FTC official C. Lee Peeler said.

The FTC, along with the North American Securities Administrators Association and the National Association of Securities Dealers helped produce the McWhortle site.

Copyright ©2002 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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